Apple, Inc. Stock Soared 42% in 2014 -- What You Need to Know

At the time of this writing, Apple stock is up about 42% year to date, crushing the S&P 500's 11% gain. Considering the company's sheer size, the gain is quite astounding. Here's another way to look at the gain: The company's market capitalization has grown by about $200 billion since the beginning of the year. Obviously there are huge implications for investors. Here are some of the most important takeaways from the soaring stock price.

Apple retail store. Image source: Apple.

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Apple stock isn't dirt cheap anymore In retrospect, it's easy to say Apple stock was cheap. After all, doesn't the stock's gain prove it? But it's tough to argue that Apple stock in 2013 wasn't one of the Street's more obvious bargains.

Even in late 2013, after the stock gained significant ground, Apple traded with a ridiculously low price-to-earnings ratio around 12 and 13 for months. Its price-to-free cash flow ratio around 11 was even more compelling.

But the story has changed. Investors who buy shares today will be paying for higher prospective earnings-per-share growth. Apple stock has a P/E ratio of 18, just shy of the S&P 500's P/E ratio of 19.5.

Apple needs more than a share repurchase program nowBefore Apple stock's big gain in 2014, the tech giant's massive share repurchase program alone was a large enough catalyst to make Apple stock look enticing. But now Apple probably needs more than an aggressive capital return program to grow into its valuation.

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Between Apple's fiscal 2013 Q4 and its fiscal 2014 Q4, net income rose by 13% while EPS rose by 20%. This outsized gain in EPS was made possible by Apple's share repurchases between over those 12 months that reduced total share count and thus boosted the net income belonging to each available share. Much of this reduction to share count was largely predictable considering Apple announced in April 2013 that it was boosting its plan to repurchase shares by the end of 2015 from $10 billion to $60 billion.

And if Apple investors didn't get the hint when the company boosted its repurchase program in early 2013, Apple shares traded flat for the first four months of 2014, through Apple's announcement of yet another boost to its share repurchase program to $90 billion (with the same end date for the shares to be repurchased), giving investors plenty of time to consider the implications of such a significant plan to boost shareholder value. It wasn't until after the latest announcement of Apple's larger repurchase program that shares began their 40% plus ascent.

But there are two key reasons now that Apple will need more than an aggressive share repurchase program to justify the stock's valuation. First of all, shares repurchased at today's value will be bought at a higher price, decreasing the intrinsic value per share gained for current shareholders with every incremental share repurchased. Second, Apple's P/E ratio of 18, unlike its super cheap P/E ratio in late 2013 around 12 and 13, prices in continued repurchases and continued net income growth.

iPhones still steal the show Apple's iPhone business is more important to future results than ever. Not only is the segment Apple's largest, but it is also growing as a percentage of revenue. In the year-ago quarter, iPhones accounted for 52% of sales. Today, they account for 56% of sales. And this will probably close in on 60% in Apple's fiscal 2015 Q1.

iPhone 6. Image source: Apple.

With the higher price tag on Apple stock, investors want the tech giant's iPhone business to continue to grow in 2015 and beyond. Fortunately, Apple's iPhone 6 looks poised to begin its life cycle with record-breaking numbers, signaling strong momentum for 2015.

Investors should continue to watch this segment closely. While sales of the Apple Watch in 2015 could end up contributing meaningfully to Apple's business, it's iPhone sales that will ultimately make or break the stock from here.